The short version
- Most lenders finance used cars up to a set age, often 7 to 12 years old at the end of the loan.
- Rates are often a little higher than for new cars.
- Get a PPSR check so you're not buying a car with money owing on it.
Borrowing for a used car
Many lenders set a limit on the car's age, often that it must be under about 7 to 12 years old when the loan ends. Older cars can mean a higher rate, or that you need an unsecured personal loan instead.
Before you buy from a private seller, check the car isn't still under finance on the government's Personal Property Securities Register (PPSR). If it is, the lender could take it back from you.
Pros
- Lower rates. The car secures the loan, so lenders charge less than for unsecured loans.
- Higher limits. You can usually borrow the full price of the car.
- A used car has already lost much of its value, so you're less likely to owe more than it's worth.
Cons
- The car is at stake. The lender can repossess it if you can't keep up.
- Rules on the car. Many lenders limit how old it can be and need comprehensive insurance.
- Older cars may not qualify, or may need an unsecured loan at a higher rate.
Alternatives
- An unsecured personal loan. Nothing is secured against the car, so you can buy any car, at any age, though the rate is usually higher.
- Saving and buying a cheaper car outright. No interest, no repayments, and no lender's conditions on the car.
- A novated lease, if your employer offers salary packaging. Payments come from your pre-tax pay, which can save tax, especially on electric cars.
How to apply
You can apply for a used car loan before you've chosen the car. Pre-approval tells you your budget and lets you bargain like a cash buyer.
- Get pre-approval. Many lenders approve you for an amount first, so you know what you can spend before you shop.
- Check your rate. Some lenders give a quote with a soft check, which doesn't show as a credit enquiry.
- Have the car's details ready. Lenders need the make, model, year, VIN and the seller's details before they pay out.
- Compare the drive away price, not just the rate. A low rate can come with a higher price on the car.
- Insure the car. Lenders usually need comprehensive insurance on a car that secures the loan.
What to check on a car loan
Look at the comparison rate as well as the interest rate. The comparison rate adds the lender's standard fees to the interest rate for an example loan, so it shows the cost of two loans on the same footing.
- Whether there's a balloon payment, a lump sum left to pay at the end that lowers your regular repayments.
- Any limit on the car's age, either when you buy it or when the loan ends.
- Whether you can make extra repayments or pay the loan off early, and what that costs.
- Whether the lender pays the dealer or private seller directly.